Saugato Datta and Sendhil Mullainathan, “Behavioral Design: A New Approach to Development Policy.” Review of Income and Wealth 60(1): 7–35, March 2014.
• Behavioral economics can help us design development policies that will work. There are no guarantees, of course – much of what we have learned comes from small-scale field experiments, and their external validity and ability to scale are not yet proven.
• The poor are like the rest of us, though their poverty adds to their psychological burdens.
• A farmer’s failure to use fertilizer might not arise from an underlying preference not to use it; indeed, it can happen even where there is a desire to use fertilizer. People procrastinate, and they do so repeatedly; people also lack self-control to resist temptations, including temptations to use resources for things other than fertilizer. As a result, the timely provision of fertilizer at a small subsidy can have significant impacts on usage; likewise, a commitment savings plan can spur fertilizer use.
• Four types of mental resources are scarce: (1) self-control; (2) attention; (3) cognitive capacity; and (4) understanding. More information or even financial subsidies may not resolve the problems created by these scarce resources.
• Datta and Mullainathan argue that development problems might be fairly situation-specific, and that the binding constraint or constraints might implicate behavioral issues. (Compare with Dani Rodrik's work (with co-authors) on "growth diagnostics".) Datta and Mullainathan suggest a behavioral mapping of problems that reveals where these constraints (bottlenecks) might bind. Commitment savings accounts, steady income flows, appropriate defaults, reward lotteries, and reminders: these are some strategies that can help to overcome behavioral bottlenecks.
Showing posts with label Mullainathan. Show all posts
Showing posts with label Mullainathan. Show all posts
Wednesday, March 9, 2016
Wednesday, February 17, 2016
Kamenica, Mullainathan, and Thaler (2011) on Poorly Informed Consumers
Emir Kamenica, Sendhil Mullainathan, and Richard Thaler, “Helping
Consumers Know Themselves.” American Economic Review 101(3): 417– 422, 2011 [pdf available here].
• Do cell phone users know about how many minutes they will talk under various pricing plans? Cell phone companies might be better informed than consumers – and possibly offer contracts that consumers will wrongly think are their best option. This is the issue explored by Kamenica, Mullainathan, and Thaler (2011).
• If price menus are fixed, the more information about her preferences a customer has, the better off she is. But when firms can choose pricing terms, increased information for consumers does not necessarily make consumers better off.
• As in the Choice Architecture article, RECAP (Record, Evaluate, and Compare Alternative Prices) is suggested. The idea is that firms must disclose pricing schemes, along with information to consumers about their own usage. Presumably this information could be used by third-party firms to compare plans, and recommend to consumers the plan that is best for them.
• “Adverse targeting [p. 418]” is what the authors call the phenomenon where firms offer pricing plans to consumers that will tempt those consumers but end up being costly to them.
• The requirement to reveal pricing is meant in part to avoid price shrouding, where important secondary prices – late fees, luggage fees, internet hook-up charges – are not made readily available to consumers.
• For RECAP to help consumers, the consumers must want the information, and have easy means of responding to the information. For new sorts of services, estimating a consumer’s usage from past behavior is not possible. [I am heartened to learn from David Halpern's Inside the Nudge Unit that RECAP has been abandoned as a term because no one could remember what it stood for.]
• Do cell phone users know about how many minutes they will talk under various pricing plans? Cell phone companies might be better informed than consumers – and possibly offer contracts that consumers will wrongly think are their best option. This is the issue explored by Kamenica, Mullainathan, and Thaler (2011).
• If price menus are fixed, the more information about her preferences a customer has, the better off she is. But when firms can choose pricing terms, increased information for consumers does not necessarily make consumers better off.
• As in the Choice Architecture article, RECAP (Record, Evaluate, and Compare Alternative Prices) is suggested. The idea is that firms must disclose pricing schemes, along with information to consumers about their own usage. Presumably this information could be used by third-party firms to compare plans, and recommend to consumers the plan that is best for them.
• “Adverse targeting [p. 418]” is what the authors call the phenomenon where firms offer pricing plans to consumers that will tempt those consumers but end up being costly to them.
• The requirement to reveal pricing is meant in part to avoid price shrouding, where important secondary prices – late fees, luggage fees, internet hook-up charges – are not made readily available to consumers.
• For RECAP to help consumers, the consumers must want the information, and have easy means of responding to the information. For new sorts of services, estimating a consumer’s usage from past behavior is not possible. [I am heartened to learn from David Halpern's Inside the Nudge Unit that RECAP has been abandoned as a term because no one could remember what it stood for.]
Wednesday, January 13, 2016
Karlan and Appel (2011) on Buying or Not Buying
Dean Karlan and Jacob Appel, “To Buy: Doubling the Number of Families with a Safety Net.” Chapter 3, pages 39-54, in More than Good Intentions: Improving the Ways the World's Poor Borrow, Save, Farm, Learn, and Stay Healthy, New York: Dutton, 2011. [Also see this Q&A with the authors at the Freakonomics blog.]
• For a successful anti-poverty policy, you need an intervention that reduces poverty, of course; but further, you need your intervention to be taken up by the targeted poor people. Many policies that “work” do not achieve high levels of take-up, including oral rehydration therapy (for protection against the effects of diarrhea), and ant-malarial mosquito nets.
• Behavioral economist Sendhil Mullainathan talks about “The Last Mile Problem,” the relative neglect of take-up after the intervention has been designed.
• Decisions to borrow money are influenced by far more factors than the interest rate. Randomized controlled experiments indicate that a photo of a pretty woman on loan informational material makes it more likely that men will borrow, and providing but one instead of four sample loans helps, too. In-person meetings, especially when introduced by a trusted acquaintance, doubles take-up.
• In another randomized controlled experiment, a cell phone giveaway did not increase borrowing; indeed, that promotion had a perverse impact.
• Choice overload leads to “I’ll think about it tomorrow”- type responses.
• Rainfall insurance for poor farmers in India is woefully undersubscribed, although (so Karlan and Appel assert) very beneficial.
• For a successful anti-poverty policy, you need an intervention that reduces poverty, of course; but further, you need your intervention to be taken up by the targeted poor people. Many policies that “work” do not achieve high levels of take-up, including oral rehydration therapy (for protection against the effects of diarrhea), and ant-malarial mosquito nets.
• Behavioral economist Sendhil Mullainathan talks about “The Last Mile Problem,” the relative neglect of take-up after the intervention has been designed.
• Decisions to borrow money are influenced by far more factors than the interest rate. Randomized controlled experiments indicate that a photo of a pretty woman on loan informational material makes it more likely that men will borrow, and providing but one instead of four sample loans helps, too. In-person meetings, especially when introduced by a trusted acquaintance, doubles take-up.
• In another randomized controlled experiment, a cell phone giveaway did not increase borrowing; indeed, that promotion had a perverse impact.
• Choice overload leads to “I’ll think about it tomorrow”- type responses.
• Rainfall insurance for poor farmers in India is woefully undersubscribed, although (so Karlan and Appel assert) very beneficial.
Tuesday, October 13, 2015
Mullainathan on Development Economics (2006)
Sendhil Mullainathan, “Development Economics Through the Lens of Psychology.” Proceedings of the Annual Bank Conference on Development Economics, 2006 [pdf].
• Parents claim to value education highly, but kids attend school sporadically. The problem seems to be the short-term decisions by the parents, so it might be best to target those decisions. The provision of meals in schools might help, and perhaps collecting school fees in small, regular payments rather than as one large, annual payment. Policies that increase school attendance also might improve teacher morale.
• ROSCAs serve as savings commitment devices, promoting regular, small deposits. The lottery-like, skewed payoff is a commitment not to spend the savings until there is a major purchase. Holding wealth in illiquid forms such as jewelry or livestock also helps solve commitment problems. If the access to microcredit undermines other savings commitments, then the mere profitability of a micro-lending program is not a good indicator of its social value.
• Making banks available to rural dwellers might make saving, and not spending, the default condition, providing some commitment.
• Loss aversion suggests that there is a lot to be said for protecting status quo positions in the course of reform. Existing stakeholders might be grandfathered, as a means to avoiding the imposition of losses.
• People look at the world in a biased way, and can perceive failures of reciprocity even where they do not exist. They might conform their behavior in accord with a negative stereotype.
• Development policies can be aimed at solving internal problems (commitment, self-control, bias) as well as external problems.
• Parents claim to value education highly, but kids attend school sporadically. The problem seems to be the short-term decisions by the parents, so it might be best to target those decisions. The provision of meals in schools might help, and perhaps collecting school fees in small, regular payments rather than as one large, annual payment. Policies that increase school attendance also might improve teacher morale.
• ROSCAs serve as savings commitment devices, promoting regular, small deposits. The lottery-like, skewed payoff is a commitment not to spend the savings until there is a major purchase. Holding wealth in illiquid forms such as jewelry or livestock also helps solve commitment problems. If the access to microcredit undermines other savings commitments, then the mere profitability of a micro-lending program is not a good indicator of its social value.
• Making banks available to rural dwellers might make saving, and not spending, the default condition, providing some commitment.
• Loss aversion suggests that there is a lot to be said for protecting status quo positions in the course of reform. Existing stakeholders might be grandfathered, as a means to avoiding the imposition of losses.
• People look at the world in a biased way, and can perceive failures of reciprocity even where they do not exist. They might conform their behavior in accord with a negative stereotype.
• Development policies can be aimed at solving internal problems (commitment, self-control, bias) as well as external problems.
Friday, July 3, 2015
Kaur, Kremer, and Mullainathan (2010) on Self-Control at Work
Supreet Kaur, Michael Kremer, and Sendhil Mullainathan, “Self-Control and the Development of Work Arrangements.” American Economic
Review 100: 624-628, May 2010.
• The starting point is the notion that self-control shortcomings make it likely that workers will not work as hard as THEY would like – and workplace organization can counteract these self-control problems.
• Once again we are faced with the welfare question of whose side we are on, the patient long-run worker or the present-biased worker who makes all the current decisions.
• Work often involves a long lag between effort and reward; regular pay can reduce that lag for a worker.
• Having the work pace set by some outside force (the assembly line) is a type of commitment device.
• The production setting can involve cues such as uniforms that might promote work effort.
• Co-workers will be the source of peer effects, which can operate through various channels, including emulation and monitoring; the peer effects might or might not contribute to production efficiency.
• The article describes an experiment with Indian piece-rate workers engaged in data entry. Instead of the standard piece-rate, they could choose a target output, and be penalized (by losing half their wages) if they failed to reach it. About one-third of those offered these commitment contracts accepted them.
• The starting point is the notion that self-control shortcomings make it likely that workers will not work as hard as THEY would like – and workplace organization can counteract these self-control problems.
• Once again we are faced with the welfare question of whose side we are on, the patient long-run worker or the present-biased worker who makes all the current decisions.
• Work often involves a long lag between effort and reward; regular pay can reduce that lag for a worker.
• Having the work pace set by some outside force (the assembly line) is a type of commitment device.
• The production setting can involve cues such as uniforms that might promote work effort.
• Co-workers will be the source of peer effects, which can operate through various channels, including emulation and monitoring; the peer effects might or might not contribute to production efficiency.
• The article describes an experiment with Indian piece-rate workers engaged in data entry. Instead of the standard piece-rate, they could choose a target output, and be penalized (by losing half their wages) if they failed to reach it. About one-third of those offered these commitment contracts accepted them.
Subscribe to:
Posts (Atom)